1. Streamline Your Costing Function
to Support Strategic Decision
Making
Aaron Frazier
LifePoint Hospitals
avid Janotha
aufman Hall & Associates
2. Our Speakers
2
Aaron Frazier
Director, Decision Support Services, LifePoint Hospitals
David Janotha
Vice President, Kaufman Hall & Associates
David has been in healthcare for over 25 years in various roles including clinical,
management, consulting and software. Currently David focuses on building decision
support tools and services to facilitate improved operational, strategic and clinical results at
customer facilities.
As Director of Decision Support Services at LifePoint Hospitals, Aaron leads the decision
support team that supports 68 hospitals in 21 states. Aaron has more than 15 years of
experience in healthcare decision support and cost accounting.
3. Learning Objectives
We plan to …
3
• Share how industry dynamics was a catalyst to
improve our cost accounting processes;
• Review 4 ways we optimized our costing model to
improve costing accuracy and efficiency;
• Highlight how executive reporting is evolving to
improve visibility to performance trends and support
more detailed ‘population analysis’;
• Discuss future plans we have to improve the value
we provide as a Decision Support team.
4. Agenda
4
I. About LifePoint Hospitals
II. Our need to redesign our cost
accounting model
III. Four significant ways we streamlined
our process
IV. Our approach to Executive Reporting –
today and future state
5. About LifePoint Hospitals
5
Headquartered in Nashville, TN
68 hospital health system
located in 21 states
LOCATION:
• $3.5 billion annual
revenues
• 28,000 employees
• 3,000 physician partners
• 300,000 IP admissions
• 1,500,000 OP visits
STATISTICS:
6. 6
Uhhhh…Aaron,
Our Product Line
Assignment Process has
been running for
2 weeks!
Is this normal???
Our Costing Initiative
What drove our need for an
improved ‘costing’ process?
• Executive demand for reports
• Need for more timely data
• Technology improvements
• Cumbersome tools
• Extended auditing cycles
• Shift focus from data to analysis
7. Key Goals to transform Cost Accounting
into a more Strategic Function
7
Let’s AIM HIGH….Let’s AIM HIGH….
What’s the worst that could
happen??
What’s the worst that could
happen??
1. IMPLEMENT – Migrate 50+ hospitals
to a new system in 1 year.
2. STREAMLINE - data reconciliation
and validation tasks
3. IMPROVE - executive reporting, more
timely and insightful views
4. SHIFT - our teams focus away from
auditing tasks and move to more
strategic analysis
8. Define Cost Accounting:
Overview of Data and Process Flows
8
Overhead
Allocations
Cost Factor
Workbooks
Cost
Assignment
Allocations to
Patient
Cost
Summary
Derive Product Lines
Estimate Net Revenue
ENCOUNTER
Clinical, Demographic
and Financial Data by
Patient Encounter.
ENCOUNTER
CHARGE DETAIL
Encounter Charge Item
Detail by Date of
Service.
CHARGE SUMMARY
RVU’s, Cost Per Unit
stored by Department
Charge Item.
• Service Line Trends
• Population Analysis
• Payor Trends
• Physician Analysis
• Strategic Modeling
• Workload Projections
• Ad Hoc and distributed
reporting
REPORTINGREPORTING
Financial
Patient Detail
Reference Tables
INPUTSINPUTS OUTPUTSOUTPUTSVALUE ADDED PROCESSINGVALUE ADDED PROCESSING
9. Define Cost Accounting:
Overview of Data and Process Flows
9
Overhead
Allocations
Cost Factor
Workbooks
Cost
Assignment
Allocations to
Patient
Cost
Summary
Derive Product Lines
Estimate Net Revenue
ENCOUNTER
Clinical, Demographic
and Financial Data by
Patient Encounter.
ENCOUNTER
CHARGE DETAIL
Encounter Charge Item
Detail by Date of
Service.
CHARGE SUMMARY
RVU’s, Cost Per Unit
stored by Department
Charge Item.
• Service Line Trends
• Population Analysis
• Payor Trends
• Physician Analysis
• Strategic Modeling
• Workload Projections
• Ad Hoc and distributed
reporting
REPORTINGREPORTING
Financial
Patient Detail
Reference Tables
INPUTSINPUTS OUTPUTSOUTPUTSVALUE ADDED PROCESSINGVALUE ADDED PROCESSING
Example:
Radiology
6200-Supervisor
6300-Tech 1 S/W
7400-Film
7400-Contrast H/M
GL Accounts: Cost Types:
Labor $Labor $
Supplies $Supplies $
Implants $Implants $
10. Define Cost Accounting:
Overview of Data and Process Flows
10
Overhead
Allocations
Cost Factor
Workbooks
Cost
Assignment
Allocations to
Patient
Cost
Summary
Derive Product Lines
Estimate Net Revenue
ENCOUNTER
Clinical, Demographic
and Financial Data by
Patient Encounter.
ENCOUNTER
CHARGE DETAIL
Encounter Charge Item
Detail by Date of
Service.
CHARGE SUMMARY
RVU’s, Cost Per Unit
stored by Department
Charge Item.
• Service Line Trends
• Population Analysis
• Payor Trends
• Physician Analysis
• Strategic Modeling
• Workload Projections
• Ad Hoc and distributed
reporting
REPORTINGREPORTING
Financial
Patient Detail
Reference Tables
INPUTSINPUTS OUTPUTSOUTPUTSVALUE ADDED PROCESSINGVALUE ADDED PROCESSING
Example:
Radiology
Chest X-Ray W/C
Arm X-Ray
Pelvis X-Ray 1 V
Ankle 3 View
Procedures:
Cost Per Test:
Labor $Labor $ Supplies $Supplies $
$12$12 $6$6
$12$12 $3$3
$15$15 $3$3
$10$10 $3$3
11. Define Cost Accounting:
Overview of Data and Process Flows
11
Overhead
Allocations
Cost Factor
Workbooks
Cost
Assignment
Allocations to
Patient
Cost
Summary
Derive Product Lines
Estimate Net Revenue
ENCOUNTER
Clinical, Demographic
and Financial Data by
Patient Encounter.
ENCOUNTER
CHARGE DETAIL
Encounter Charge Item
Detail by Date of
Service.
CHARGE SUMMARY
RVU’s, Cost Per Unit
stored by Department
Charge Item.
• Service Line Trends
• Population Analysis
• Payor Trends
• Physician Analysis
• Strategic Modeling
• Workload Projections
• Ad Hoc and distributed
reporting
REPORTINGREPORTING
Financial
Patient Detail
Reference Tables
INPUTSINPUTS OUTPUTSOUTPUTSVALUE ADDED PROCESSINGVALUE ADDED PROCESSING
Example:
Charge Detail
Encounter XYZ
(Rad)Chest X-Ray
(Lab) CBC
(Lab) WBC
(ICU) Private Rm
Procedures:
Cost:
LaborLabor
11
11
11
11
Date:
6/126/12
6/126/12
6/126/12
6/126/12
$12$12
$9$9
$8$8
$450$450
Qty:
12. Define Cost Accounting:
Overview of Data and Process Flows
12
Overhead
Allocations
Cost Factor
Workbooks
Cost
Assignment
Allocations to
Patient
Cost
Summary
Derive Product Lines
Estimate Net Revenue
ENCOUNTER
Clinical, Demographic
and Financial Data by
Patient Encounter.
ENCOUNTER
CHARGE DETAIL
Encounter Charge Item
Detail by Date of
Service.
CHARGE SUMMARY
RVU’s, Cost Per Unit
stored by Department
Charge Item.
• Service Line Trends
• Population Analysis
• Payor Trends
• Physician Analysis
• Strategic Modeling
• Workload Projections
• Ad Hoc and distributed
reporting
REPORTINGREPORTING
Financial
Patient Detail
Reference Tables
INPUTSINPUTS OUTPUTSOUTPUTSVALUE ADDED PROCESSINGVALUE ADDED PROCESSING
Example:
XYX
ABC
Encounters:
Encounters
LaborLabor SupplySupply
DEF
$2500$2500
$1200$1200
$750$750
$5600$5600
$350$350
$200$200
Summarized Cost:
13. 13
INPUTSINPUTS OUTPUTSOUTPUTS
1 week
System & time
intensive process.
Reconciliation
to Financials
$
Re-process
Costing & Patient
Assignment Process
Process
!Outliers
Exist
2.5 weeks
Time consuming effort,
facility-by-facility
(50+ in total).
Assign
Product Lines
2 days
A pre-requisite
step to report
distribution that
took days.
Ad hoc
Very manual process,
data downloads to Excel
& emailed
Our Challenges
Compute &
assign costs
Compute &
assign costs
Assign product
lines
Assign product
lines Distribute reportsDistribute reportsLoad dataLoad data
Old Costing Model Separate Query Tool
Reformat in Excel, then
Distribute.
15. 15
Cost Accounting:
Streamline the process
1. An improved data model
2. Efficient data reconciliation
3. Improved RVU & Cost Modeling
4. Improved transparency to cost allocations
16. 1 – Improved Data Model
16
Variable cost of $1,974,426?
Where does this number comprise?
Labor?, Drugs?, Other Medical Supplies?
Variable cost of $1,974,426?
Where does this number comprise?
Labor?, Drugs?, Other Medical Supplies?
PROBLEM:
Detail established during
cost modeling is LOST
when it is summarized to
Patient Level.
17. 1 – Improved Data Model
17
PROBLEM:
Detail established during
cost modeling is LOST
when it is summarized to
Patient Level.
COST
SUMMARY
COST
SUMMARY
ENCOUNTER
CHARGE DETAIL
ENCOUNTER
CHARGE DETAIL
CHARGE ITEM
SUMMARY
CHARGE ITEM
SUMMARY ENCOUNTERENCOUNTER
Medical SuppliesMedical Supplies
ImplantsImplants
PharmacyPharmacy
Patient Care LaborPatient Care Labor
Purchased ServicesPurchased Services
Indirect
Facilities
Indirect
Facilities
Medical SuppliesMedical Supplies
ImplantsImplants
PharmacyPharmacy
Patient Care LaborPatient Care Labor
Purchased ServicesPurchased Services
Indirect
Facilities
Indirect
Facilities
Medical SuppliesMedical Supplies
ImplantsImplants
PharmacyPharmacy
Patient Care LaborPatient Care Labor
Purchased ServicesPurchased Services
Indirect
Facilities
Indirect
Facilities
Medical SuppliesMedical Supplies
ImplantsImplants
PharmacyPharmacy
Patient Care LaborPatient Care Labor
Purchased ServicesPurchased Services
Indirect
Facilities
Indirect
Facilities
Table:
Dimensions:
Detail:
Process:
DepartmentDepartment Encounter/
Charge Item
Encounter/
Charge Item
Department/
Charge Item
Department/
Charge Item EncounterEncounter
Costs
Mapped
Costs
Mapped
Cost
Assigned
Cost
Assigned
Costs
Derived
Costs
Derived
Costs
Summarized
Costs
Summarized
SOLUTION:
Intuitive data model where
cost detail is retained
across financial and patient
views.
Additional detail helps
reveal outlier trends related
to cost of care.
Consistent Detail Captured thru Encounter DetailConsistent Detail Captured thru Encounter Detail
18. 2 - Efficient Data Reconciliation
18
PROBLEM:
Auditing 50+ hospitals each
month was incredibly tedious
and time consuming.
Next
Page
Previous
Page
Is it supposed to
take 2 minutes
each time I hit
NEXT PAGE?
Example Facility Level Audit Report:
19. 2 - Efficient Data Reconciliation
19
PROBLEM:
Auditing 50+ hospitals each
month is incredibly tedious
and time consuming.
SOLUTION:
• Scheduled audit checks
• Automated for 50+ hospitals
• Data-driven exceptions (alerts)
Process: Costs
Mapped
Costs
Mapped
Cost
Assigned
Cost
Assigned
Costs
Derived
Costs
Derived
Costs
Summarized
Costs
Summarized
Outliers
Flagged
Automated Review
By Facility
Example Audit Alert Template:
20. 3 – Online & Intuitive RVU Input
20
PROBLEM:
Cost Assignment
process was an off-line
manual process, prone
to error.
Re-formatted
to Excel
Re-formatted
to Excel
Changes are
uploaded
Changes are
uploaded
Offline
RVU
model
Offline
RVU
model
Query
downloads
Query
downloads !
!
Technical
Process
Time
Intensive
!Technical
Process
RVU Updates
Manager
Review
Manager
Review
Old Costing Model Separate Query Tool
21. 3 – Online & Intuitive RVU Input
21
PROBLEM:
Cost Assignment
process was an off-line
manual process, prone
to error.
SOLUTION:
• Leverage RVU plan file
• Leverages GL $ mapping
• RVU updates are interactive,
change DB in real-time
GL Accounts and
$’s are mapped to
cost pools
GL Accounts and
$’s are mapped to
cost pools
Example RVU Modeling Plan File:
Cost per
Charge Item
logic is EASY
to understand
Cost per
Charge Item
logic is EASY
to understand
22. 4 – Transparent Cost Allocations
22
PROBLEM:
• Allocations were difficult to
audit and (more importantly)
explain.
• Direct patient support costs
were being assigned to
patients based on utilization
instead of benefit and being
categorized as indirect
expense Improved Reporting:
Audit Reports that validate resulting for
each Department by Allocation
Category.
Improved Reporting:
Audit Reports that validate resulting for
each Department by Allocation
Category.
CLINICAL ADMINCLINICAL ADMIN
4 South4 South
3 North3 North
RadiologyRadiology
ADMISSIONSADMISSIONS
Patient PopulationPatient Population
Allocation OUT Allocation TO
9,8989,898
Indirect
Department
Groupings
Indirect
Department
Groupings
Direct
Departments
Direct
Departments
23. 4 – Transparent Cost Allocations
23
PROBLEM:
Allocations were difficult to
audit and (more importantly)
explain.
SOLUTION:
• Tailored reports to clearly
show how dollars map
from Indirect to Direct
Departments.
• Identified areas where
costs could be allocated
directly to patients.
Improved Reporting:
Audit Reports that validate resulting for
each Department by Allocation
Category.
Improved Reporting:
Audit Reports that validate resulting for
each Department by Allocation
Category.
CLINICAL ADMINCLINICAL ADMIN
4 South4 South
3 North3 North
RadiologyRadiology
ADMISSIONSADMISSIONS
Patient PopulationPatient Population
Allocation OUT Allocation TO
9,8989,898
Indirect
Department
Groupings
Indirect
Department
Groupings
Direct
Departments
Direct
Departments
24. 24
Service Line Reporting:
Strategies that worked
1. Updated Product Line Definitions
2. Redesigned key reports
3. Provide more comprehensive views of
performance
25. Reporting Objectives:
What did we hope to accomplish?
25
As Analysts:
•To be more responsive with an improved toolset
•Shift time from tedious downloads and reformatting to more
analysis
•To deliver comprehensive reports that answered first line
questions about performance trends.
For the Executives (CFO’s):
•For data to be timely, well-understood, trusted
•Reports that are intuitive, easy to comprehend
26. #1 – Update Product Line Groupings
26
OBJECTIVE:
• Develop a consistent set of
services lines across all
facilities
• Provide consistency where
possible across IP & OP
populations.
APPROACH:
• Derive Service Lines across
populations using
PROCEDURES
• Where necessary, we are
evaluating Department &
Charges Detail for assignments
Derived by Procedure
for IP & OP
Populations.
Derived by Procedure
for IP & OP
Populations.
27. 27
#2 – More Intuitive Report Formats
• Excel Pivot Tables
• Prohibitively large files
• Not terribly intuitive
MOVE AWAY FROM:
• Refined Report Templates
• Filter-”Wizards” to streamline qualifications
• Pre-formatted, efficiently distributed
Filter & QualifyFilter & Qualify
Choose Primary
and Secondary
Break Fields
Choose Primary
and Secondary
Break Fields
Per Case TrendsPer Case Trends
ADOPTING MORE DYNAMIC REPORTING:
28. # 3 – Comprehensive Trend Reporting
28
OBJECTIVE:
• Shift time away from reacting to
various ad hoc request to
comprehensive reporting
• Isolate variables – volume,
payor and cost per case
measures.
Snapshots in time show raise more questions:
(*) Sample data is being used.
CASE VOLUME
•Is the volume changing overall?
•Increasing year-over-year?
•Or, Shifting across service lines?
CASE VOLUME
•Is the volume changing overall?
•Increasing year-over-year?
•Or, Shifting across service lines?
REVENUE
•Increasing?, Decreasing?
•What’s driving change?
•Mix? Cost Per Case?
REVENUE
•Increasing?, Decreasing?
•What’s driving change?
•Mix? Cost Per Case?
MARGIN
•What’s change to prior year?
•Are high margin services up?
•Shifts due to revenue or cost?
MARGIN
•What’s change to prior year?
•Are high margin services up?
•Shifts due to revenue or cost?
VAR COST
•Is it cost or utilization driven?
•Do outliers exist?
•Increasing in certain services?
VAR COST
•Is it cost or utilization driven?
•Do outliers exist?
•Increasing in certain services?
29. # 3 – Comprehensive Trend Reporting
29
OBJECTIVE:
• Shift time away from reacting to
various ad hoc request to
comprehensive reporting
• Isolate variables – volume,
payor and cost per case
measures.
APPROACH:
• Deliver a consistent set of reports
(“push”) to Division CFO’s
• Engage in follow-up to understand
where additional review or analysis is
needed.
Service Line Margin
Analysis
Service Line Margin
Analysis
Payor Mix & Rate
Analysis
Payor Mix & Rate
Analysis
Cost Per Case
Analysis
Cost Per Case
Analysis
Highlight Trends in
Service Line Margins
across volume, revenue and
cost drivers.
Evaluate the impact of
volume, payor mix and rate
changes by Service Line (or
population).
Understand Cost Drivers, by
Department, by Physician.
30. Benefits Achieved
30
• Reporting flexibility has led to wider utilization of
Axiom by non-financial users:
• EXAMPLE #1 - Our Physician Relation Initiative teams
lacked sufficient data when engaging w/ our physicians.
– We overcame this by creating physician volume reports now
being utilized by facility growth teams
– The reports allow the user to see, by product line, physician
volume over time and to see referral patterns across four
different physician fields.
– This is leading to more accurate physician metric tracking and
more effective tools to drive positive physician engagement
– Provides visualization of missing physician data points
31. Benefits Achieved
31
• EXAMPLE #2 - ED Dept Acuity Level Reporting
– Is now being utilized in the Emergency Rooms
– Tailored reporting now provides effective visualization
trends of ER volume by acuity level
32. Next Steps & Future Plans
32
• Continue partnering with Divisional CFO’s
• Dashboards
